Student loans: Two words that can give even the calmest millennial cold sweats. After all, paying these off isn’t exactly a distant memory—that is, if they’re not still chipping away at those high balances. And now that they’re settling down and having kids, saving for their children’s college tuition may be top of mind.
From providing 529 college savings plans to scholarships, here are five ways businesses can help shield their employees’ children from hefty education debt.
1. Offering 529 College Savings Plans
A 529 plan is a college savings account that’s exempt from federal taxes. The money grows tax-deferred and if you take money out for a qualified expense, you won’t have to pay state or federal taxes on the amount withdrawn. There are two options to choose from: prepaid tuition plans and college savings plans.
Prepaid plans let you pay part of in-state tuition early, locking in tuition costs at that rate—but these plans have limits. State-run prepaid plans typically only apply to college tuition and fees; items like room, board and books aren’t usually covered. In contrast, savings plans can apply to almost any accredited college, professional or trade school. In 2018, the plans were extended to apply to private tuition through 12th grade. Qualified expenses include tuition, books, room and board.
State by state, there are tons of plans to choose from, each with different rules and policies. Some state plans are even sold nationally, so you can still use them even if you live elsewhere. Regardless of which you choose, there are no restrictions on who can contribute to a 529 or how much can be contributed every year, making them a popular choice for business owners. A few states even offer tax credits or deductions for employers who contribute to their employees’ 529 college savings plans.
2. Paying the Full Tuition or Offering Scholarships
Some businesses take care of these expenses entirely. The company Boxed, for example, instituted a policy of covering college tuition for its full-time employees’ children. Chieh Huang, CEO of Boxed, explained to The Penny Hoarder that tuition would cost more than an employee could save even if the company tripled their hourly wages. He saw this perk as a chance to change lives as well as inspire employee loyalty.
Wells Fargo offers educational scholarships to employees’ children. Dependent children must apply for the scholarships themselves, with application periods coming up every year. Scholarships range from $1,000 to $3,000.
3. Purchasing Savings Bonds
Some companies might want to purchase savings bonds that can go toward a child’s education. Bonds are low risk, even if the interest earned is also very low. An individual can buy up to $10,000 worth of bonds a year per recipient.
4. Allowing Coverdell Education Savings Account Contributions
Coverdell Education Savings Accounts are another way of saving for qualified education expenses. According to the IRS, corporations can also add to these accounts, but they must do so in cash and cannot deduct these contributions.
These accounts are limited to $2,000 a year in total contributions, including all Coverdell savings accounts that one individual may have. In addition, the beneficiary has to use the money by age 30. But these funds are more flexible than 529s and can be used for college, elementary or secondary education—or even for expenses like laptops or cell phones.
5. Letting Employees Decide the Details
Some employers use a service like Gift of College, which lets their employees contribute funds to a savings plan of their choice. It’s essentially a gift card that employers put money on, which they can then use toward a 529, ABLE plan or student loan account.
Tax laws regarding college savings accounts frequently change, so businesses should consult an attorney to ensure they’re following all federal and state laws before making any contributions. Despite some red tape, contributing to the future of employees’ children can be a great way for businesses to show they care about their staff while boosting their reputation as a great place to work.
Looking for resources that could help you choose the best dental insurance plan for your organization? Explore the Dental Plan Navigator hosted on United Concordia Dental’s website.